Google Antitrust Ruling Poses US$20 Billion Risk for Apple
Updated: Aug 26
The antitrust verdict puts Apple's $20 billion partnership with Google at peril. The potential termination of the deal might have a 4-6% impact on Apple's profits. The legal process may last until 2026, with potential appeals.
Wall Street analysts suggest that to avoid antitrust repercussions, Google might need to end the deal that establishes its search engine as the default on Apple devices.
According to Morgan Stanley analysts, Google pays Apple a substantial US$20 billion annually, equivalent to around 36% of its search advertising revenue generated through the Safari browser. If this agreement is terminated, Apple could potentially experience a 4-6% decline in its profits, as estimated by analysts.
The current deal is set to continue until at least September 2026, with Apple holding the option to unilaterally extend it for an additional two years, as per reports from May citing a document filed by the Department of Justice in the antitrust case.
According to Evercore ISI analysts, the most likely outcome is that Google will no longer be required to pay for default placement, or that companies such as Apple will need to actively prompt users to choose their search engine rather than setting it as the default, allowing consumers to change settings as needed.
Despite a global market decline on Monday, Apple's shares stayed stable on Tuesday, while Alphabet saw little movement after a 4.5% dip the previous day. Herbert Hovenkamp, a legal expert, stressed the necessity of avoiding exclusive agreements for corporations with dominating market positions to ensure customer choice.
Looking ahead, the legal procedure might be lengthy, with potential appeals to multiple courts, possibly lasting until 2026. However, if the Google-Apple cooperation is severed, Apple may consider alternatives such as selling Microsoft Bing or developing a new search engine powered by OpenAI, quickening its transition to AI-driven search services.
Apple recently revealed intentions to integrate OpenAI's ChatGPT chatbot into its products, indicating a shift away from exclusive collaborations to address regulatory challenges. Apple is also in talks with Google to incorporate the Gemini chatbot and boost Siri's AI capabilities, allowing it to utilise emerging technologies for better user experiences.
While these initiatives may not generate big revenues right now, they position Apple to benefit on AI developments in the long run. Analysts feel that, despite the possible income loss from the Google agreement, Apple can use this as a chance to shift towards AI solutions for search, in line with the changing tech landscape.
Apple's US$20 billion deal with Google at risk due to antitrust ruling
Potential termination of agreement could impact Apple's profits by 4-6%
Legal process may extend until 2026 with possible appeals
Source: REUTERS
